The growing probability that China will devalue its currency could prove potentially “devastating" for fertilizer stocks because global nitrogen prices would plunge instantly with ammonia following in sympathy, Scotiabank's Ben Isaacson says.

Potash demand destruction would be swift as Chinese farmers push back on soaring local prices required to cover unchanged U.S. dollar prices, although the phosphate market could be spared as lower-cost Chinese capacity would not be able to push non-integrated India producers off the cost curve, Isaacson says.

"Commodities worldwide would suffer greatly,” the analyst says, noting that Agrium (AGU-1.1%) and Mosaic (MOS-0.9%) would be the better picks if a devaluation occurs but would still suffer “first-degree burns."

U.S. Steel (NYSE:X) -1.3% premarket after announcing it will temporary idle the Minntac plant, part of its Minnesota Ore Operations, effective June 1, citing ongoing operational adjustments that are the result of challenging market conditions.

Job losses are not specified, only that the number of employees impacted will be based upon operational and maintenance needs.

The company says it will continue to operate Minntac at reduced capacity in order to meet customer demand.

Monday, March 30, 2015

Mosaic (NYSE:MOS) says changes to Saskatchewan's potash production tax will cost it $80M-$100M in 2015, and it expects to update all guidance, including CRT and Canadian Royalties, in its Q1 earnings release on April 30.

The provincial government said earlier this month that it will require potash mining companies to spread out tax deductions on capital spending over a longer period of time, in an effort to plug a C$661M ($525M) drop in revenue from lower oil prices.

Potash Corp. (NYSE:POT) has said the changes will hurt its 2015 pre-tax earnings by C$75M-C$100M.

Teck Resources (TCK+10.9%) and Antofagasta (OTC:ANFGF+4.1%) are exploring a merger that would create one of the world’s largest copper producers, Bloomberg reports.

The mining companies reportedly have held early-stage talks, and any agreement is said to hinge on the approval of the families that control each company.

With a market value of ~C$11.3B, TCK is Canada’s third-largest mining group and London-listed Antofagasta has a market value of ~£7.3B ($10.8B), so a purchase of either company would be one of the mining industry’s largest deals over the past five years.

Canpotex says shipments to China will reach at least 1.8M metric tons, up from 1.6M in 2014, and may be as much as 2.5M metric tons, depending on supply, demand and logistics; the group does not release price terms but says the contracts are at "current competitive levels."

Belarusian Potash said earlier this month it signed a contract with China to sell potash for $315/ton including shipping costs, which was $10 more than last year’s price.

The Norwegian fertilizer maker company originally had hired Norsk Hydro CEO Svein Richard Brandtzaeg for the job, but he withdrew before taking up the post when Yara began merger talks with CF Industries last September; during the talks, Yara fired its then-CEO Joergen Ole Hasslestad and promoted Torgeir Kvidal to acting CEO.

A report on Tuesday from the USDA is expected to show a 3% Y/Y rise in planted soybean acreage this spring vs. a 2% decrease for corn - the move coming as farmers deal with a 50% decline in corn prices since 2012.

"Economics rule," says one farmer, noting he can break even or make a small profit on beans, but would likely lose money on corn.

Not exactly in a bull market itself, but still at relatively lofty levels, soybeans could face some price pressure from the switch, and big speculators of late have boosted bets on a slide in bean prices. “We’ve got record large soybean stockpiles and the crops in both hemispheres this year were just enormous,” says an analyst. “It’s a perfect storm that’s starting to brew in the beans.”

Rio Tinto (RIO+0.4%) CEO Sam Walsh says the company's earlier proposal to Mongolia's government to restart the long-delayed Oyu Tolgoi copper mine was its "best and final offer."

Rio submitted the proposals to resolve outstanding issues such as a $127M tax claim that already has been cut to $30M as well as the approval of a $4B project financing package to pay for construction of phase two, which will extend the mine underground.

Walsh also says financing for the second phase of the project will have to be renegotiated, especially in light of volatile copper prices; he does not state a specific timeframe for when phase two could begin operations, saying Rio would first have to finalize negotiations with the government and also remobilize its workforce.

Rio's Turquoise Hill Resources (NYSE:TRQ) owns 66% of the $6.5B Oyu Tolgoi, with the Mongolian government holding the rest.

Friday, March 27, 2015

Vale (NYSE:VALE) should consider selling as much as a 20% stake in its crown jewels - the Northern System operations, which includes Carajas, the world's largest iron ore mine - to "regain control of its destiny" amid the huge drop in iron ore prices, says Deutsche Bank analyst Wilfredo Ortiz.

Vale's balance sheet is "precarious," Ortiz says in estimating the miner's funding gap could climb to $10B under a distressed pricing scenario for iron ore of $45/ton through the end of 2017.

The analyst estimates selling a 15%-20% stake in Carajas could fetch $8B-$10B, which would be enough to cover most of the outstanding capital investment for the mine's expansion and would shore up Vale's balance sheet "to weather pretty much any storm in the iron ore market."

It's just a matter of time before U.S. steel companies such as Nucor (NYSE:NUE), U.S. Steel (NYSE:X) and Steel Dynamics (NASDAQ:STLD) seek tariffs on imports, Credit Suisse analysts say.

Recent plant closures by U.S. Steel and this week’s State of Steel meetings in D.C. "look like a convenient prelude to the filing of a steel trade case," the firm says, adding that one of the first steps is the demonstration of injury.

Steel businesses which are most vulnerable to imports will be those most active in trade cases, Credit Suisse says; U.S. Steel is a high fixed-cost business, for which pricing losses translate almost directly into earnings loss.

For investors, the firm prefers X for “the longer term potential of its asset base under a revised operating regime,” and worries about NUE due to its valuation premium relative to STLD.

Not long after a report quoted SCCO's head of institutional relations as saying the project would be canceled due to lack of support from regional authorities and continued local opposition, CEO Oscar Gonzalez said the company would "continue with its efforts to move forward with the Tia Maria project and we hope to have the support of the people and the government."

Grupo Mexico (OTCPK:GMBXF), which owns a controlling stake in the Peruvian company, also said its subsidiary was not cancelling the project.

Dow's deal to sell its chlor-alkali business to Olin (OLN+18.2%) in exchange for $2B and a 50.5% stake in the smaller company will create the world’s largest chlorine producer with 5.7B tons/year of production and $1B in EBITDA.

Citigroup’s P.J. Juvekar offers three reasons why the deal is good for shareholders: The chlor-alkali divestiture at 8x EBITDA is a great multiple for a commodity business, the Reverse Morris Trust deal makes it tax-free and a split-off will allow Dow to buy back its own shares efficiently - a similar move by PPG Industries was viewed very positively two years ago, and Dow will sell ethylene to OLN for 20 years and will receive an upfront payment of ~$400M.

Dow may still get rid of its agricultural chemicals business, which does not have a lot in common with the rest of the business; with $7.3B in sales and almost $1B in EBITDA last year, the unit could be worth $10B.

Juvekar says Axiall (AXLL+5%) also could benefit from the deal, seeing consolidation in the U.S. chlor-alkali industry as a positive, and OLN says it will look to optimize its expanded chlor-alkali asset base.